Not a Heartbreak Hotel

The day before he left for his official visit to the United States, Yasser Arafat presided over the groundbreaking ceremony for a Marriott Hotel to be built on the beachfront in Gaza.

This project says, symbolically, that the Middle East peace process might, finally, produce tangible benefits for the people in the area, especially through direct involvement of the private sector. The construction and later operation of this hotel will provide employment for hundreds of Palestinians. It will contain a modern commercial center to enable international visitors and Palestinians to conduct business as it is done elsewhere in the world. The project will include a self-contained telecommunications center for international calls, faxes, and e-mail as well as excess telephone capacity for the local market.

While diplomatic achievements are essential, the real test of the peace process is how it affects the daily lives of Israelis and Palestinians. If substantive and visible improvements do not result, no international agreements can succeed. For the majority of Israelis, the key element is security. Israelis must feel safe riding buses, shopping in malls, and sending their children to schools. If random acts of violence occur, they must be assured that the Palestinian Authority will work with Israeli officials to find and prosecute the terrorists.

Peace dividend: lower incomes

Although more Israelis have been killed through terror attacks since the Sept. 13, 1993, signing than in any comparable period, it appears that the Palestinians finally understand their responsibility to work with Israelis to enhance security concerns. The test for most Palestinians is whether the peace accords will result in an improved quality of life. Developing a thriving economy that provides new employment opportunities will not only minimize hatreds and tensions, but will also bring about the promise of a new life.

Economic divergence exacerbates political and religious tensions. Since the first Rabin-Arafat signing, Israeli per capita income has increased from $13,800 to over $15,000, while Palestinian incomes have dropped by a third to under $1,200.

Delays and reallocations of internationally pledged contributions, the reluctance of foreign investors to establish projects in Gaza and the West Bank, border closures, the slow pace of diplomatic negotiations, and difficulties encountered in setting up a viable Palestinian economy have contributed to growing frustration. Public infrastructure and services, including education, health care, sanitation, water, waste water disposal, and electricity continue to be inadequate. Despite a minor building boom, a housing shortage remains.

While the Netanyahu government has eased some limits on Palestinians seeking employment in Israel, the numbers able to cross the borders are significantly below the 120,000 able to find daily work in Israel in 1992.

Rather than growing to absorb these workers, the Palestinian economy has declined over the past two years. Thus, workers have fewer opportunities to find employment within Palestinian areas. The unemployment rate in Gaza, always high, is now estimated at approximately 50 percent, with the rate in the West Bank estimated at 30 percent. Unemployment is highest among young, single men - the most likely recruits for terror-oriented groups.

Big aid pledges, little follow-through

The US hosted an international meeting on Oct. 1, 1993, at which $2.4 billion in assistance to the West Bank and Gaza was pledged. Most of these funds have not been delivered or have been diverted from long-term projects to emergency programs and costs of running the Palestinian Authority.

The United States committed $500 million, of which $75 million annually for five years is managed by the Agency for International Development (AID). The other $125 million was to come from the Overseas Private Investment Corporation (OPIC) to assist American investors through a combination of loans, loan guarantees, and political risk insurance.

AID has assisted a number of worthwhile projects, including $12 million for construction of six housing units with 192 apartments in Gaza called Al Karam Towers. AID is also helping to improve uses of scarce water resources and assisting private sector economic growth through technical assistance, training, loans to local firms, and establishment of industrial parks. But AID funds have been diverted from long-term projects to help in establishing Palestinian self-rule. For example, AID committed $2 million to support local elections in the West Bank and Gaza, and to assist Palestinians in promoting more responsible and accountable governance.

AID has minimized help for the agricultural sector, the one area where Palestinians could immediately develop profitable exports, especially under a new Free Trade Agreement with the US. Allocating additional funds to farm exports would be cost efficient.

OPIC made a major effort to seek private sector projects to assist or insure. But most private investors have avoided Gaza, so OPIC funds committed to date have been modest.

Mr. Arafat would be wise to stress the solving of such economic problems as a prime way to reduce tensions, improve the quality of life, and enhance opportunities for peace. He should build on momentum from the hotel project and stress the need for private sector involvement in the Palestinian economy.

* Ralph Nurnberger is senior partner at Nurnberger &amp; Associates and an adjunct professor at Georgetown University. He served for eight years as a lobbyist for the American Israel Public Affairs Committee.